A Household Name Gets A COVID-19 Downgrade

Companies like Brinker International (NYSE: EAT), Bed Bath & Beyond (Nasdaq: BBBY) and Herman Miller (Nasdaq: MLHR) have all announced either postponements or suspensions of their dividends.

More announcements like this are sure to come. In fact, the stimulus package states that any company that receives bailout money must suspend stock buybacks and dividend payments until its loans are paid back to the government.

There will likely be a large number of downgrades. As a result, we are becoming much more conservative in our parameters.

That way, you can have confidence that any company rated “A” or “B” is unlikely to cut its dividend, even in these trying times.

Verizon (NYSE: VZ) is one of those companies affected by the tighter model. Under normal circumstances, it would receive an “A” rating for dividend safety.

Verizon has raised its dividend every year for the past 15 years, so it has an impressive history.

The positive: Free cash flow is forecast to grow more than 9% this year to $19.6 billion from $17.9 billion. In fact, free cash flow has been steadily rising for a number of years.

The negative: Due to SafetyNet Pro‘s new payout ratio parameters, Verizon’s is over the limit, albeit barely.

Last year, the company paid out 56% of its free cash flow in dividends. This year, it is forecast to pay 52%.

Six weeks ago, those figures would have been well within my comfort zone. But the world was very different six weeks ago. Today, those numbers are less comfortable.

Additionally, Verizon has a decent amount of debt. It has $100 billion in long-term debt. Its debt-to-equity ratio is 1.6, and its debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio is more than 2.

Disclaimer: Nothing published by Wealthy Retirement should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in their own securities recommendations to readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation.

Any investments recommended by Wealthy Retirement should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Marc is the Chief Income Strategist for The Oxford Club and Wealthy Retirement, as well as Founder and Senior Editor of The Oxford Income Letter. He also contributes frequently ...
more

Marc is the Chief Income Strategist for The Oxford Club and Wealthy Retirement, as well as Founder and Senior Editor of The Oxford Income Letter. He also contributes frequently to The Oxford Communiqué and Investment U.

Marc is Editor of VIP Trading Services Dividend Multiplier, Oxford Systems Trader and Lightning Trend Trader, and is the author of Get Rich With Dividends. His investment career started out at the trading desk of Carlin Equities in San Francisco, California, where he executed dozens of trades each day for his clients.

He also obtained his NASD Series 86 & 87 licenses (required for all sell-side analysts). At Weiss Research, he co-managed the Real Wealth Portfolio and beat the S&P 500 by 17% over a six-month period.

Marc joined the team following a successful stint as senior columnist at TheStreet.com. A contrarian investor by nature, Marc loves to shoot holes in conventional thinking and take profits where nobody else is looking. He’s broken several major stories on biotech companies and his investment approach blends thorough fundamental research with the timing tools of technical analysis.

Throughout his career, Marc has outperformed the S&P 500 and the S&P Healthcare Index by a wide margin.